Iron ore has plummeted to the lowest in two-and-a-half months after China ramped up its commitment to reduce emissions by cutting steel output.
Booming demand and limited supply drove iron ore to record highs in the last few weeks but an acceleration in China’s efforts to control steel production is beginning to weigh heavily.
The commodity tumbled 7.4 per cent to $US181.57 a tonne on Friday and is now in bear market territory, having fallen 23.5 per cent from the record $US237.57 reached in May.
The decline weighed on the Australian dollar which dropped 0.7 per cent to US73.44¢.
“We’re seeing iron ore prices coming back down to earth quite quickly which is often the case when fundamentals reassert themselves,” HSBC chief economist Paul Bloxham said.
“The slowdown in global manufacturing and reopening of the services sector is occurring against the backdrop of the vaccine rollout and Chinese authorities wanting to take steam out of the commodities market.”
The world’s largest steel producer and exporter is attempting to cap output and overseas sales at below last year’s record levels as part of an effort to reduce pollution and boost domestic supply.
China has had limited success so far. Production climbed 12 per cent in the first half of the year, meaning a substantial drop this half for China to meet its objectives.